The digital economy and policy implications for trade
JB Cronjé, tralac Researcher, discusses how digital technologies are transforming global trade
The emerging fourth industrial revolution is characterised by a fusion of technologies that blur the lines between the physical, digital and biological spheres. It is fuelled by massive advances in computer processing, storage capacity and unlimited amounts of data. The exponential and unprecedented speed at which the revolution is taking place has a disruptive effect on entire systems including the production, management and governance of every industry. To understand this effect, one only needs to consider the spectacular global growth of Uber, which offers a smartphone application to its users to order a taxi service, and the impact it has had on the traditional metered taxi industry. The company does not employ drivers and does not own vehicles. In many cases regulators where caught off guard; unable to respond to the new reality.
This phenomenon can also be observed in other industries. For example, the world’s most valuable retailer, Alibaba, has no inventory and the largest provider of accommodation, Airbnb, owns no real estate. This new breed of companies, including Facebook, WhatsApp, Twitter and many others, are powered by pivotal technologies of cloud, mobile, data analytics and social and provides a new customer interface. Over-the-top (OTT) service providers such as WhatsApp, Google Hangout and Skype allow users to send messages and make calls over data networks at a fraction of the cost of traditional telephone calls and thereby reducing giant mobile network providers to mere data providers. It is the new companies that provide the services that consumers value; not the mobile operators. Unsurprisingly, mobile operators are petitioning governments to regulate OTT services because they are eating into their profits and bandwidth.
But digital disruption will require all companies, including manufacturing, agriculture and mining, to re-evaluate business models, modernise manufacturing, overhaul supply chains, use more intelligence in marketing and sales and reconsider management and recruitment policies. This will be necessitated by expected technological breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing. Materials scientists, for example, study the structure of materials (increasingly new and advanced materials such as nanomaterials and biomaterials) in relation to their properties and relative performance in a certain application. For example, the foam-like structure of bone motivates scientists to design materials that are lightweight and strong. In the case of motor vehicle manufacturers, they will increasingly compete by using more complex materials and proprietary production processes. They will also more and more be held responsible for the life-cycle of their products from materials extraction to recycling and disposal. All of this will require manufacturers to develop intricate knowledge of the materials used in their products and their health and environmental effects at every stage in the life-cycle of a product. Another example involves the sharing of digital design files across the internet and then by using 3-D printers to produce tailor-made medical prosthesis.
Digital technologies are transforming global trade, beyond enabling communication. Digital goods such as books, magazines, movies and games can be transported and reproduced globally. Digital platforms such as eBay and Alibaba give small businesses a global reach for their goods and services. And radio-frequency identification technologies can be embedded in physical goods to track the cross border flow thereof and reduce losses in transit. The digital economy has the potential to improve the productivity and efficiency of firms and raise the income levels and quality of life of people. However, automation may lead to the displacement of labour and create social tension. It may also create safer and better paid jobs but it will require reskilling and upskilling of workers.
The convergence of technologies and digital trade offers significant economic opportunities but it will challenge the regulatory systems of governments. These opportunities can only be realised through the free flow of data across borders. However, some governments view the free flow of information as a threat to national security, public order and consumer privacy. In response, some countries require information service providers to locate servers and store their data in-country. This keeps information from leaving a country but it also raises the costs of those services making them uneconomic to provide by small and medium sized businesses. Two ways of overcoming this challenge is to require a person’s informed consent before personal information is shared across borders or to require foreign providers to protect information consistent with national standards. However, storing information in the home country does not protect it from criminals.
Therefore, international rules to facilitate cross-border trade are needed, in particular on issues such as digital liability, privacy protection and IP rules. Cybersecurity initiatives and encryption standards should be harmonised across countries. Obligations to ensure the cross border flow of information, subject to legitimate public policy objectives, and not to impose requirements on data localisation are already included in trade agreements such as the Trans-Pacific Partnership Agreement. This would require a member state to adopt national consumer protection laws and cooperation among national consumer protection agencies.
Trade agreements currently under negotiation on the continent should reflect new forms of cross-border commerce and customs procedures and address issues around security, privacy and internet governance. It also requires the prioritisation of digital infrastructure and ensuring access to low-cost broadband across the continent. Governments in Africa will need to adapt to a fast changing world or risk being left behind.
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Lund, S. and Manyika, J., 2016. How Digital Trade is Transforming Globalisation Available [Online] at http://www.tralac.org/news/article/8854-how-digital-trade-is-transforming-globalisation.html
Schwab, K., 2015. The Fourth Industrial Revolution: What It Means and How to Respond Available [Online] at https://www.foreignaffairs.com/articles/2015-12-12/fourth-industrial-revolution